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Re: Proposed FCC Ruling: Hinder wireless in MT

This is a bunch of baloney. Chinook does an excellent job of manipulating public opinion into thinking that without federal subsidies they can’t exist and rural Montana (or other parts of the country) would be deprived of wireless service.

First, Verizon covers far more than Chinook—without federal subsidy. Second, Chinook does a fine job of covering Montana service areas, plus Wyoming, and now it’s acquired areas in OK and TX—all with the private equity Chinook’s partners have invested in the company, as well as operating revenues. Federal subsidies will simply provide gravy to the few equity partners.

There is no evidence whatsoever that Chinook needs federal subsidies, or that without such subsidy wireless service will dry up. Moreover, the cap that Chinook is so exercised about is just that: a cap. It will not deprive any carrier of any funds. Wireline carriers are already capped. Why shouldn’t such a program cost control be imposed on wireless carriers, too?


No one asks, and they won’t provide, any information on whether Chinook actually needs federal subsidies, how they will use them, and what would happen without them. Contrary to high-cost wireline companies, which provide all of their cost data before receiving a dime—if any—of federal support, wireless carriers provide zero, zip, nil cost data or any other evidence of need. And yet, they cry wolf; and get away with it.

The wireless companies threaten to implode the federal universal service fund, which would in turn threaten investment in the very infrastructure that wireless providers rely on to provide their service. They started in 2003 with $15 million in federal subsidies. Then everyone climbed on board the gravy train and wireless carriers now receive over $1.2 BILLION. Wireline support has remained stagnant, and even declines, while wireless support threatens the entire viability of the universal service system. Even worse, the subsidy they line up to receive has nothing to do with their own costs, since they receive the identical support that the high-cost wireline providers receive.


Pls forward to Mr. King of the MAEDC. He should do a little due diligence before he puts the reputation of his organization on the line.

Geoff Feiss
Montana Telecommunications Association
406.442.4316 (office)
406.594.0424 (mobile)



Serving Montana’s telecommunications industry for over 50 years

--Geoff Feiss

Mr. Feiss is, as usual, an excellent advocate for the wireline companies. From my perspective as an advocate for users in rural, underserved communities I can not agree with his position, however. Our work in rural communities in Idaho and North Dakota has shown that the expansion of wireless (cellular) service in those communities is the most economical means to build the infrastructure that can also suppport broadband internet, public safety mobile data, and public safety radio coverage.
There must be some room for compromise between the wireline and wireless positions. If the use USF funds could be directed to the many communities without adequate, affordable
broadband and public safety service, then it would seem that the real goal of USF funding would be met.

--Paul DeWolfe

I am a Montana native, a 15-year telecommunications industry veteran, and local counsel to Cellular One (formerly Chinook Wireless). I, like many others, have come to know Dick King as a man of honesty and integrity, whose contributions to the vibrancy of Missoula’s economy have been many and manifest. For this reason I feel compelled to provide additional context to the area in which he and Mr. Feiss apparently disagree.


Since 1983, the Universal Service Fund has collected money from telecommunications companies across the country, pooled those funds, and distributed them to the wireline telephone companies that serve the nation’s high-cost rural areas. This financial support enabled recipients to offer services and rates that were affordable and reasonably comparable to those offered in urban areas. In 1996, Congress extended funding beyond the traditional wireline monopolies, to wireless and other competitive telecom providers, so that their services could also be offered in rural areas at affordable rates.


The availability of affordable wireless service is important to the increasing number of Montanans who use wireless as their only phone. Availability and affordability are also important to those who rely on their cell phones’ mobility to help them in roadside situations, on the farm, ranch or mountainside, or in the conduct of their daily business while traveling. Cell phones save lives by allowing immediate, mobile access to 911 emergency response services. Their convenience and functionality also contribute to business development and jobs creation.


Cellular One has asked the Montana Public Service Commission to determine its eligibility for universal service funding. I agreed to represent the company in the application process because I firmly believe they meet all of the requirements for funding. If Cellular One receives funds to defray a portion of the costs of constructing and deploying more cell sites, Montana citizens will benefit from more coverage. These investments in Montana’s wireless infrastructure will give us better wireless service, enhanced economic opportunity and competitiveness, and increased safety in places like our vehicles and our fields -- not just at the places where our landline phones are bolted to our walls. Local expenditures by Cellular One would circulate in our economy, and the investments would increase the tax revenues that pay for government services. Indeed, I have to question why Mr. Feiss so vehemently opposes increased investment in Montana’s wireless infrastructure as well as affordable rates for wireless service in the State’s rural areas when there are clearly so many positive consequences.


Unfortunately, the FCC is currently considering the imposition of a “cap” or “ceiling” on the amount of the Fund that could be distributed to wireless and other eligible competitive telecom companies, including Cellular One. As currently proposed, the cap would hurt our state. It will mean fewer cell sites, meaning less coverage, less safety, and fewer jobs. Rural areas deserve the availability of telecom services at prices that are reasonably comparable to those in urban areas. But since they are usually the last areas to be built out (because they are almost always the areas with the highest construction costs and lowest revenue potential), rural areas would suffer most from such a cap.


The biggest problem with the cap in Montana is that our state is far behind most of the nation both in the ubiquity of its wireless coverage and in its receipt of universal service funds. The proposed cap actually exacerbates this latter problem because it is structured on a “state-by-state” basis, meaning that no more funding would flow to any given state than currently flows there. The fundamental problem with this approach is that nobody has done an analysis to determine if the amounts currently flowing to the states are in any way fair and reasonable when the states are compared to each other. Mississippi is poised, therefore, to continue to receive the $145 million per year it gets today, but Montana would not get a penny more than the $11 million it received in 2007. In other words, the proposed cap would “lock in” the inequities of the current structure of the Fund.


The facts are as follows.


1. If companies like Cellular One don’t receive funding for rural buildout, they cannot build coverage to as many areas. That’s a simple fact of business; a few customers sprinkled over a large area do not provide enough revenue to pay for the substantial and very expensive equipment and services at cell sites. The suggestion that Verizon covers everywhere that wireless service is needed in Montana is incorrect. Even though Verizon is a large company with a lucrative wireline business, many areas in Montana remain to be served. In Cellular One’s application to the PSC for USF funding, it specifically listed and mapped the areas where it will build coverage with USF funding during the first phase of its construction plans, including areas that are not covered by Verizon. Further, if Cellular One receives a grant, it will be required to update those maps and build more coverage every year. Its coverage plans are ambitious. Frankly, I think Montanans should encourage this kind of ambitious behavior by folks who want to invest in our state. It reminds me of the ambitious people 50 years ago who built the cooperatives Mr. Feiss represents today.


2. Cellular One has been particularly progressive in extending its wireless coverage into rural areas of Montana without universal service fund support. However, if Chinook is to provide more coverage to the many areas of Montana that still have inadequate coverage or no coverage at all, it will indeed need universal service funding.


3. It is not true that wireless should accept a flat cap on federal funding, as Mr. Feiss states, because “[w]ireline carriers are already capped.” Caps on wireline funding did not occur until the wireline network had attained almost ubiquitous coverage of America’s homes and businesses. It is not comparable to cap wireless companies after most have just started to receive funding, and their networks, particularly in rural states, are far from ubiquitous (this is especially true because unlike wireline networks, wireless networks have to work throughout the areas between homes and businesses as well as within such structures. Moreover, the reality is that from 2001 to 2006, funding for wireline companies grew by $1.7 billion – from $1.5 billion to $3.2 billion annually (an increase of more than 100% over five years). It even went up $40 million just from 2006 to 2007. These increases have occurred even though from 2002 to 2006, those same landline companies lost more than 17% of their lines nationwide. The cap or caps on wireline funding are not working, apparently. In contrast, the cap proposed for wireless would be an absolute cap on all high-cost funding, i.e., not one penny more, no matter how great the need.


From 2002 to 2006, funding for wireless grew from almost nothing to its current nationwide total, which is only about a quarter of the annual funding that wireline companies receive – even though wireless companies and their subscribers pay more than a third of the moneys that go into the fund each year. In percentage of growth terms, funding for wireless buildout grew faster; because wireless received little funding until the 1996 Act expressly permitted them to start applying for these funds. However, wireline funding has been in the hundreds of millions for more than a dozen years; now it is in the billions. It grew twice as much in real dollars and remains much larger than wireless. Wireline funding is also, therefore, a much greater burden on the universal service fund than wireless.


Regarding information on why Cellular One needs or how it will use the subsidies: the company has been through an intensive documentation process with the Montana PSC, in precise conformity to their rules. Cellular One has, over the course of more than a year, provided the Commission with reams of information, including financing, costs, buildout maps, planned coverage area lists, and more. This includes literally hundreds of pages of testimony, responses to discovery, and other filings. The company has clearly demonstrated why the support is needed and how it will be used. Wireless carriers that receive USF money must comply with strict and unambiguous FCC rules with regard to the proper expenditure of that money and must report to the PSC annually to justify those expenditures or risk losing their eligibility to continue receiving funds.


5. As for cost data: neither the FCC nor the Montana PSC has requested or required that applicants provide cost data before they start receiving funding and putting it to work. Nevertheless, Cellular One described its current equipment and leasing costs at cell sites to the Montana Commission, not only in its filings but also in a hearing last October in which Mr. Feiss was a participant. Also, if it is granted eligibility, Cellular One will be required to file ongoing reports showing the Montana Commission how it is using the funding, and file capital budgets for prospective build out plans.


6. Mr. Feiss claims wireless companies threaten to implode the universal service fund. It isn't going to implode. Note these two facts: (1) the contribution factor, the amount consumers pay into the fund, is actually decreasing at the same time that consumers' average bill for telecomm services continues to decrease. This means it is actually getting ‘easier’ for our nation to support the universal service program that offers rural states like Montana so much potential benefit. Clearly, there is no imminent implosion. (2) Wireline funding, not wireless, accounts for most of the size of the fund. In fact, perhaps the most significant reason for that growth is that the rural wireline companies received a special dispensation whereby they continue to receive the subsidy associated with a customer even if they lose that customer to a competitor. Therefore, in such circumstances, the fund must pay out twice. This is a significant and unnecessary burden on the fund.


The foregoing facts would be evident to anyone who actively participated in the legal proceeding associated with Cellular One’s application for eligibility for Universal Service Funding. Since Mr. Feiss was not only the manager of one of the parties to that proceeding but also an expert witness in it, I think he could be described as an active participant. His apparent outrage thus strikes me as insincere at best. For him to claim that his primary concern is the fate of the federal fund is completely lacking in credibility. More likely, his primary concern is that his members might stumble when faced with the rigors of competition. Fair competition requires equal funding, and Montana needs all of the help it can get in the deployment of modern telecommunications infrastructure across its vast geography. Funding, not capping, wireless buildout is the way to treat rural Montana in a manner that is fair and consistent with Congress’ universal service mandate in the Telecom Act. Again, rural areas can and should have the same kinds of telecommunications services, at the same rates, as urban areas. This principle is something all Montanans can proudly support.




Sincerely,


Michael Strand, Attorney-at-Law

Strand & Associates, PLLC

Helena, Montana

April 11, 2008

--Michael Strand

Mr. Strand mounts a protracted defense of his client’s interests. Not long ago, he offered a diametrically opposite defense of a different client, arguing that wireless subsidies are unnecessary and contrary to the public interest.

The issue here is not whether wireless service provides various social and economic benefits for the citizens of Montana. Rather, the issue is the same as the one articulated infamously by Deep Throat: “Follow the money.” The problem is, we can’t. Wireless providers offer absolutely no evidence whatsoever that they actually need the subsidies they seek. In the case of Mr. Strand’s client—which is owned by a private equity firm in Boston which promotes its investments in profitable enterprises—there is no evidence that subsidies are needed.

Unlike wireline carriers whose use of universal service is the result of detailed cost studies demonstrating that recipients need such support to provide comparable, affordable telecom service, the wireless providers simply rake in subsidies with no demonstrable need. Wireline carriers don’t even qualify for support unless they demonstrate that their costs to provide essential services exceed a national average cost benchmark by 115%. (Actually it’s now about 120% because of the effects of a cap on wireline support—the very same kind of cap the wireless providers so vociferously oppose.) We don’t even know what a national average cost of providing wireless service is, let alone what “high cost” means as a percent of the average!

Wireline carriers need universal service to maintain investment in affordable service. Without universal service support, prices for local telephone service in Montana could increase by 150% to 250%.

Chinook stands to reap a $5.8 million gain from federal subsidies alone. Wireless service providers already widely offer service, at affordable rates—without subsidy. Are wireless carriers’ subsidies needed? Maybe in some limited situations. Maybe not. We don’t know. Were wireless providers like Chinook planning to build towers to meet customer demand anyway—with or without subsidies? We just don’t know.

Until and unless we develop a better way of determining actual need for federal subsidy, rather than simply giving it away because, as Mr. Strand suggests, someone else gets it, then it is reasonable temporarily to put a governor on the federal funding accelerator. That’s what a cap would do. Meanwhile, the FCC is seeking comments on long-term reform proposals that would require all recipients of federal support to demonstrate that they actually need subsidies to provide affordable, comparable service in targeted areas where such service may not otherwise economically be possible. That seems like a rational suggestion.

Ronald Reagan said, “Trust, but verify.” I trust that Chinook and other wireless carriers sucking down over a billion dollars a year of federal universal service support actually need these subsidies to extend service where it otherwise could never reach affordably.

Without verification, however, Willie Sutton’s words are as true today as they were at the turn of the last Century. Wireless carriers are stumbling over one another to get federal subsidies, because that’s where the money is.

--Geoff Feiss